Sudan: More Proactive CSR Needed?

Tristan Reed at UCLA makes a sensible argument that current efforts to force firms operating in Sudan to divest may be hindered by an excessive emphasis on punitive measures ("sticks") . Nor has using incentives ("carrots") to compel corporations doing business in Sudan to continue operations contingent on engaging Khartoum over the Darfur crisis resulted in broad changes. Another possible tack may be for these firms to join interested parties which diplomatically engage Khartoum over respect for human rights--UN agencies, NGOs, and diplomats--instead of passively reacting to activists' efforts. As providers of much-needed FDI, these firms have considerable leverage that may not be fully utilized during diplomatic discussions over the Darfur crisis. That is, these firms' activities in Sudan ought to be made a more explicit bargaining chip in discussions involving a broader set of stakeholders. As a counterexample to involving firms in the discussion, a recent Reuters-sponsored event on "Dealing with Darfur" had no representatives from firms investing in Sudan to share their points of view. Then again, perhaps these firms should not be made uncomfortable by implicitly casting them as "villains."

This argument is similar to a J-Curve argument--positive engagement instead of isolation may be a better way in moving a coercive regime in the direction of opening up to the rest of the world. Isolation can make despotic regimes more firmly rooted, and forced divestiture may be unwelcome as it may turn Sudan further inward. Indeed, Sudan is a very difficult corporate social responsibility (CSR) challenge. Here is an excerpt from the thought-provoking piece:

Implicit in this model [of divestment from Sudan] is the assumption that at least one of two mechanisms will cause Khartoum to change its stance. Either the company values its investment in Sudan enough that it lobbies the Sudanese government to change policy, or the Sudanese government values the investment enough that it changes policy on its own accord, hoping to entice the company to stay. In the former mechanism, investment functions as a carrot; in the latter, its potential withdrawal functions as a stick. Unfortunately, however, there is no evidence to suggest that either of these two mechanisms have been set in motion.

As for the first mechanism, the companies that have left so far have done so with little fanfare, without any documented requests for the government to shift course. When interviewed by Campus Progress, [Siemens spokesperson] Ozer was unable to comment on whether Siemens had made any such requests. ABB...says on its website only that it engages in continuing “dialogue” with the government, and has not publicly specified any demands. Thus, it appears companies are content to hang back passively until the conflict ends instead of actively lobbying Khartoum. As for the government, it has shown little interest in changing policy in order to bring companies back in. Indeed, it may be that state-owned Asian companies—notably those of China, India, and Malaysia, who are expanding their capacities rapidly—are able, for now, to fill Khartoum’s investment gap.

Now, one could argue, fairly, that the government has yet to respond to the stick because divestment has not yet been pervasive enough to affect the activities of the Asian companies. Indeed, if Warren Buffet, the investment guru whose decisions are closely monitored by the market, decided to pull his company’s investments out of PetroChina—a company whose parent, the China National Petroleum Corporation is heavily invested in Sudan—CNPC might begin to worry about Sudan and Khartoum might start to get its act together. But such an event is unlikely, and until one occurs Khartoum’s perception of the investment climate will probably stay the same.

But what of the carrot? The Task Force’s “engagement” strategy could do more to utilize it. It should insist that after companies cease business activity, they immediately—and publicly—make the renewal of business contingent upon Khartoum taking specific steps towards peace. Siemens, for instance, could offer to continue work on the city’s telecom networks if and only if U.N. peacekeepers hit the ground in Darfur. Ideally, the Task Force could bring companies and peace negotiators together to decide which contingencies would be most productive.

Some companies already have the social connections in place to start such a process. ABB, in addition to its “dialogue” with the government, also maintains connections with NGOs, U.N. agencies, and diplomats. Divestment campaigns should force companies like ABB to team up with these groups in lobbying the government. With their economic influence outweighing any political heft concerned members of the United Nations have exerted thus far, it’s a travesty these companies aren’t brought front and center at the negotiating table.

Incorporating such a strategy in a divestment campaign would have no disadvantages. Activists would still have the same negotiating power, as companies would still face divestiture if they failed to negotiate with Khartoum. Additionally, the strategy may well draw more public attention to Darfur. In owning stock, investors own a piece of a company, and when they see they can put their company to work at the negotiating table, they will feel all the more connected to the crisis.